Two Companies, One Common Employer

Sometimes, an employer is acquired or taken over by another company. Other times, an employee is moved from one company to another related company. In the employment law context, this can sometimes give rise to what some lawyers refer to as the “common employer” doctrine or principle.

According to this principle, an employee working for two or more companies, concurrently or consecutively, may be treated or viewed by the law as having only one common employer. For an employee dismissed without cause, this can be significant when it comes to obtaining compensation for the termination of employment, especially as it relates to the calculation of the employee’s years of service.

For instance, an employee, hired and paid by a now-insolvent company, may be able to claim damages for wrongful dismissal from a related, albeit separate, corporation. A recent decision of the Divisional Court, a link to which may be found here, revisited the notion of a common employer.

This case was an appeal of a trial judge’s finding that the plaintiff employee’s years of employment from a previous employer carried over to his employment with the related defendant employer. In this case, the two companies were related only in the sense that the founder of the defendant employer happened to be an officer and minority shareholder of the previous employer. At trial, the judge concluded that damages should be based on the employee’s years of service with the previous employer, in addition to the years of service with the defendant employer.

On appeal, the Divisional Court overturned the lower court’s finding after a review of the applicable law. According to the Divisional Court, simply because two companies may share common officers and shareholders does not automatically mean that the two companies can be treated as one and the same for the purposes of a wrongful dismissal. Instead, there must be evidence of an intention to create an employer/employee relationship between the individual and the group of related companies. A determination of the true employer depends on where effective control of the employee resides.

The Divisional Court’s conclusion was significant because it had the effect of reducing a judgment in favour of the plaintiff employee based on a reasonable notice period of three months down to only three weeks. From an employee’s point of view, this means the difference between an application to the Ministry of Labour for payment of employment standards entitlements and a wrongful dismissal action in the Superior Court of Justice.

This article is intended only to provide general information and does not constitute legal advice. Should you require advice specific to your situation, please feel free to contact me to discuss the matter further.

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